Finding that a tax-exempt religious organization failed to meet the
requirements of the statute providing for exemptions from the motor fuel
tax for exempt organizations, a New York State Administrative Law Judge
has upheld the Department of Taxation and Finance’s denial of a refund.
Matter of Watchtower Bible and Tract Society of New York, Inc., DTA
Nos. 827916 & 828547 (N.Y.S. Div. of Tax App., Sept. 26, 2019).
Facts. Petitioner Watchtower Bible and Tract Society of New York,
Inc. (“Watchtower”) is a New York not-for-profit corporation exempt from
sales and use taxes under Tax Law § 1116(a)(4). Its purposes are
religious and charitable, and it supports the activities of Jehovah’s
Witnesses by, among other activities, printing and distributing
religious material, supporting religious education, and building and
owning facilities where religious activities are performed.
Construction of Watchtower’s world headquarters in Warwick, New York,
began in 2013 and concluded in 2017. The construction site presented
unique challenges, since it was small but occupied by many workers and
pieces of equipment working under a tight deadline. At the site,
approximately 108 pieces of equipment owned by Watchtower were fueled
with diesel motor fuel, which was transfered first into fuel tanks,
primarily a 4,500 gallon tank carried on a fuel truck. For most of the
project, Watchtower dispensed the diesel from its fuel tanks into a
smaller 600 gallon tank that could easily navigate the construction site
and was used to deliver fuel to the various pieces of equipment on
site. Each tank was equipped with a diesel nozzle that was capable of
fueling the equipment used by Watchtower. Although the nozzles were too
large to fuel most on-road vehicles such as passenger cars and trucks,
they could be used to fuel buses and tractor trailers. Watchtower did
not permit any of the fuel to be used for on-road vehicles, and
implemented policies and security procedures—such as securing all tanks
and nozzles with keys kept in a secure location, limiting access to the
keys, and hiring security guards—to prevent the fuel tanks from being
used to fuel anything other than its off-road construction vehicles.
The Law and the Dispute. Article 13-A of the Tax Law imposes tax on
petroleum products sold or used in the State, which is passed through to
the purchaser by the seller as part of the selling price. Tax Law §
301-b(h) provides an exemption for non-highway diesel motor fuel, known
as “dyed diesel,” sold to nonprofit organizations, if the fuel is
delivered to the premises of the exempt organization, used exclusively
for exempt activities, and consumed other than on State highways. The
statute also explicitly provides that the exemption does not apply “to a
sale of non-highway diesel motor fuel which involves a delivery at a
filling station or into a repository which is equipped with a hose or
other apparatus by which such non-highway . . . fuel can be dispensed
into the fuel tank of a motor vehicle.” While all other requirements of
the statute were met, the disputed issue was whether Watchtower’s
acceptance of the dyed diesel into fuel trucks and tanks equipped with
nozzles disqualified it from receiving the exemption.
The Determination. The ALJ denied the refund. He rejected
the argument made by Watchtower that the statute should be interpreted
to allow the exemption because the dyed diesel was not permitted to be
dispensed into vehicles other than construction vehicles, and had not
been actually used for other purposes, finding that tax exemptions are
to be strictly and narrowly construed, with a presumption against the
taxpayer and in favor of the taxing authority. The ALJ held that the
statute does not “look to whether the exempt organization permits dyed
diesel to be dispensed into motor vehicles but whether the repository . .
. can fuel a motor vehicle.” (Emphasis added.)
Watchtower had argued that the strict interpretation made the
exemption impossible because there are no fuel nozzles in existence
capable of filling exempt road building machinery but not ordinary motor
vehicles, so there was no way for Watchtower to comply with the
statutory requirement. However, the ALJ found that Watchtower could have
qualified for the exemption if, instead of accepting delivery into
intermediary repositories and then fueling its equipment, it had
directed its supplier to directly fuel the construction vehicles.
ADDITIONAL INSIGHTS
It is a familiar principle that tax exemptions are strictly and
narrowly construed, so any party seeking an expansive definition of an
exemption will have an uphill battle. Some taxpayers have argued that an
exemption should not be interpreted so narrowly that the intended
purpose is thwarted, but that argument does not seem to have been raised
here, and the determination does not discuss any legislative history,
or delve into the reasons why the exemption was crafted with the
specific language governing the nature of the equipment rather than the
actual use made of the product. It is always important to closely
examine the exact requirements of an exemption statute in structuring a
transaction in which a party hopes to take advantage of any tax
exemption.